Career Concerns and Policy Intransigence
نویسنده
چکیده
I investigate why a political leader (manager) may be reluctant to abandon her chosen project, when she is concerned both about social welfare and the electorate’s (shareholders’) beliefs about her ability. The quality of the project is correlated with her ability, and there is ex ante symmetric information. However, news regarding the project arrives gradually over time and is privately observed by the leader, who may choose whether and when to cancel the project, so that we have a dynamic signalling game. I find that the inefficiency caused by career concerns varies with the information structure. Only under one particular information structure is it impossible for the political leader to choose an efficient policy in equilibrium, regardless of the intensity of her reputational concerns. This occurs when private news are bad news, but are not very informative. When private news are good news, or sufficiently informative bad news, the leader can choose the efficient policy in equilibrium provided her reputational concerns are not too large. This last proviso is more relaxed the better the leader’s private information. JEL Classification Number: C73, D82, B83, P16.
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